98% Home Loans: Buy With a 2% Deposit

And unlike traditional high-LVR home loans, some specialist options don’t require you to pay traditional Lenders Mortgage Insurance (LMI). Instead, they use a different fee structure.

These loans may be available to first-home buyers, existing homeowners, investors and borrowers looking to refinance.

The important question isn’t just how much you can borrow. It’s whether the loan suits your income, available savings, property and long-term plans.

What Is a 98% Home Loan?

A 98% home loan allows you to borrow up to 98% of an eligible property’s value. This is known as a 98% loan-to-value ratio (LVR).

For example, if you’re buying an $800,000 property:

• Property purchase price: $800,000
• 2% deposit: $16,000
• 98% home loan: $784,000

This example assumes the lender accepts the purchase price as the property’s value and excludes lender fees and other purchase costs.

Traditionally, a 98% home loan could mean borrowing 95% of the property’s value and adding capitalised LMI to reach 98% LVR.

However, some specialist lending products now offer up to 98% LVR using an alternative fee structure instead of traditional LMI.

That means there are different ways to reach 98% LVR, and they don’t all have the same deposit, fees or eligibility requirements.

How Do 98% Home Loans Work?

There are two main lending structures to understand.

1. A 95% Home Loan With Capitalised LMI

Under this arrangement, you contribute at least 5% of the purchase price and borrow the remaining 95%.

Because your deposit is below 20%, Lenders Mortgage Insurance (LMI) will generally apply unless you qualify for an exemption or waiver.

Some lenders allow you to add the LMI premium to your home loan balance, increasing the total LVR to as much as 98%.

For example, on a $600,000 property, a 5% deposit is $30,000 and the base loan is $570,000. If a lender allows $18,000 in LMI to be capitalised, the total loan becomes $588,000, or 98% LVR.

The $18,000 LMI amount is illustrative, not a premium quote. If the actual LMI exceeds the amount a lender permits you to capitalise, you’ll need to contribute additional funds or explore another option.

2. A 98% Home Loan With an Alternative to LMI

Some specialist lenders offer loans of up to 98% LVR without traditional LMI.

Instead, these products charge a Rate Reduction Fee (RRF), which helps support the loan’s interest-rate structure.

Under one specialist structure, the mortgage is divided into two loan portions:

• A primary loan covering up to 80% of the property’s value.
• A secondary loan covering the remaining borrowing, up to the maximum permitted LVR.

Both portions can have the same interest rate and loan term.

The RRF is calculated according to the loan amount, LVR and selected product. Depending on the lender’s terms, it may be financed or form part of the funds you need to complete the purchase.

Importantly, no traditional LMI doesn’t mean no fees. You should compare the alternative fee, interest rate, repayments, loan features and total borrowing costs before choosing this structure.

Home Loan Experts’ mortgage brokers can help you compare alternatives to find the right home loan for you. Call us on 1300 889 743 or enquire online today.

Can You Buy a House With a 2% Deposit?

Yes. Certain specialist lenders allow eligible borrowers to buy a home with a deposit equal to 2% of the property’s value.

This is different from using a government-backed deposit scheme, and it doesn’t necessarily require a family guarantor or a government equity contribution.

However, the amount you need to save can be higher than the deposit itself.

How Much Is a 2% Deposit?

These figures illustrate the deposit and corresponding base borrowing only. They exclude stamp duty, conveyancing, government charges, lender fees and any valuation shortfall.

What Other Costs Do You Need To Cover?

Depending on the property, loan and your eligibility for concessions, additional costs may include:

• Stamp duty and government registration charges.
• Conveyancing and legal fees.
• Valuation, settlement and other lender fees.
• LMI or an alternative fee such as the RRF.
• Building inspections and other purchase expenses.

For first-home buyers, some stamp-duty concessions may reduce the amount of money needed upfront.

Our brokers calculate a detailed funding position to show how much cash you need, how the loan is structured and whether you have enough funds to complete the purchase.

Use our Home Loan Deposit Calculator to estimate your deposit requirements.

Who Can Qualify for a 98% LVR Home Loan?

Eligibility varies between lenders, but a 98% home loan generally requires a strong overall financial position.

Income And Borrowing Capacity

You’ll need to demonstrate that you can afford the mortgage repayments alongside your living expenses and other financial commitments.

Lenders assess factors such as your employment income, existing home loans, credit-card limits, personal loans, household expenses and dependants.

Having a 2% deposit doesn’t automatically mean you can borrow 98% of any property price. Your borrowing capacity may limit the amount you can spend.

Employment History

Stable, verifiable income can improve your options.

However, not every lender assesses employment history the same way. Some consider borrowers with shorter employment histories or those still on probation, subject to conditions.

If you’ve recently changed jobs, it’s worth having a broker check your employment circumstances before assuming you must wait several months to apply.

Genuine Savings

Some high-LVR lenders require evidence that you’ve saved money consistently over a specified period.

Other lenders may have more flexible policies.

For example, certain lenders may assess a shorter savings history or consider evidence of regular rental payments, depending on their requirements.

The amount of genuine savings required may also differ from the minimum deposit contribution.

Your mortgage broker can review your bank statements, rent history and source of deposit to establish which options may be available.

Credit History

A clear repayment history generally improves your chances of approval.

Recent missed repayments, defaults or other credit problems can restrict your choices at a 98% LVR.

A broker can review the nature of any credit issues and explain whether a high-LVR application is realistic.

Residency And Borrower Structure

Different lenders accept different visa categories, applicant relationships and ownership arrangements.

Some specialist policies may consider applications involving an Australian citizen or permanent resident and a partner holding an eligible bridging visa.

Other scenarios may involve two borrowers on the loan but only one person registered on the property title.

These arrangements require careful lender-policy, ownership and legal checks. They aren’t available for every borrower or property.

Which Lenders Offer 98% Home Loans?

A limited number of banks and specialist lenders offer lending structures that can reach 98% LVR.

Some bank products reach this LVR by adding capitalised LMI to a lower base loan amount.

Other specialist loans may provide up to 98% LVR with an alternative fee instead of LMI.

The lenders available to you will depend on factors such as:

• Whether the property will be owner-occupied or rented out.
• Your deposit and savings history.
• Your employment and existing commitments.
• The property’s location, size and type.
• Your credit history and borrowing capacity.

Rather than comparing only maximum LVRs, Home Loan Experts can assess the lending structure, total costs and eligibility rules that apply to your situation.

Can You Get a 98% Investment Home Loan?

Yes. Some specialist lenders offer investment property loans up to 98% LVR.

This can be useful for eligible buyers who have enough income to service an investment mortgage but don’t want to contribute a conventional 10% or 20% deposit.

However, investment lending at this LVR has additional restrictions.

For example, some specialist products are intended for borrowers buying or refinancing their only investment property. Other conditions can apply to existing property ownership, accepted rental income and property location.

Principal-and-interest repayments may also be mandatory.

Investors should consider the higher loan balance, ongoing property expenses, vacancy risk and cash-flow requirements before taking on high-LVR debt.

Our brokers can compare the upfront funding requirement with ongoing repayments to help determine whether a 98% LVR investment loan is a suitable option to investigate.

Can You Refinance at 98% LVR?

Yes, some specialist lenders allow eligible borrowers to refinance with an LVR as high as 98%.

This may be relevant if you’ve bought a home recently, have limited equity or need to investigate restructuring an existing mortgage.

However, refinancing at a high LVR can involve additional fees, a new property valuation and a full reassessment of your financial position.

The amount you owe compared with the property’s current value will influence your options.

A mortgage broker can calculate whether refinancing is feasible and whether the potential benefits outweigh the costs.

Are There Property And Location Restrictions?

Yes. Properties used as security for a 98% LVR loan usually have to meet stricter conditions.

Some specialist lenders restrict borrowing to eligible metropolitan and selected regional postcodes.

Restrictions can also apply to:

• High-density apartment buildings.
• Small apartments and studio properties.
• Unusual or specialised properties.
• Vacant land and construction loans.
• Properties with valuation or marketability concerns.

For example, one specialist 98% LVR product generally requires at least 50 square metres of internal property area and has restrictions on certain high-density apartment developments.

A property being eligible with one lender doesn’t mean another lender will accept it.

Before paying a deposit or exchanging contracts, ask a mortgage broker to check whether the intended property meets the relevant lender’s security requirements.

Is a 98% Home Loan Better Than a 5% Deposit Loan?

Not necessarily.

A 98% LVR loan may reduce the initial property deposit required, but borrowing more can increase repayments and expose you to greater financial risk.

A 5% deposit loan might offer a different interest rate, fee structure or selection of features.

Likewise, borrowers who qualify for a government-backed loan may be able to avoid both LMI and an alternative specialist fee.

The right comparison includes the total cash required to settle, monthly repayments, fees, loan features and longer-term costs.

A larger maximum loan isn’t necessarily a better outcome.

What Are the Risks of a 98% Home Loan?

Buying with a small deposit can make homeownership possible sooner, but there are important risks.

• Higher repayments: You are borrowing almost the entire property value, so your regular repayments may be higher than on a loan with a larger deposit.
• Limited equity: You begin with a small ownership stake relative to the property’s value. A fall in property prices can leave you owing more than the property is worth.
• Fewer refinancing options: If the property value falls or your financial circumstances change, switching lenders may be difficult.
• Higher total interest: Borrowing more means paying interest on a larger loan balance. If a fee is capitalised, that may increase the interest payable further.
• Restricted features: Some specialist products offer variable, principal-and-interest loans with redraw rather than an offset account or interest-only repayments.

For these reasons, it’s worth comparing a 98% loan with alternatives rather than choosing it solely because the deposit requirement is lower.

How Can Home Loan Experts Help You Get a 98% Home Loan?

A 98% LVR application needs more than a deposit calculation.

Our mortgage brokers can assess your full lending scenario, including whether your income is sufficient, which lenders accept your property, and how the loan’s fees affect the funds needed at settlement.

This is particularly important when you’re dealing with less straightforward circumstances, such as recently changing jobs, different visa statuses, limited savings history, existing debts or buying an investment property.

We can help you:

• Assess borrowing capacity: Determine what you may be able to borrow based on your income, expenses and financial commitments.
• Compare low-deposit options: Review specialist 98% loans alongside government-backed schemes, guarantor loans and conventional high-LVR products.
• Calculate your funding position: Establish the deposit, fees, stamp duty and additional funds required.
• Check lender eligibility: Consider employment, savings, credit history, ownership structure and property restrictions.
• Prepare your application: Help you understand the documents required and whether pre-approval is appropriate.

General information only. Credit criteria, fees, charges, loan features and lender policies apply. Maximum LVRs and minimum deposits are not guarantees of approval. Product availability and conditions may change.